American Airlines heads into shareholders meeting on a high

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Michael Ainsworth/Staff Photographer

Doug Parker (center), CEO of American Airlines Group, celebrated the listing of the newly merged company’s stock on the Nasdaq exchange Dec. 9, accompanied by former AMR CEOs Tom Horton (left) and Robert Crandall.

The last time that American Airlines Inc.’s parent held a shareholders meeting, its stock was in the dumpster, its losses were unrelenting and its future was in doubt.

When the new parent holds its shareholders’ meeting Wednesday, the situation will be much changed.

American Airlines Group Inc. — formed Dec. 9 in the merger of American and US Airways Group Inc. — holds its first annual meeting on a high: The price of its shares keeps climbing. The company is solidly profitable. And it’ll have a new chairman and management team.

The main question at this point is how long it will take to fully integrate American and US Airways into a single airline and fully enjoy the expected benefits of creating the world’s largest air carrier.

But few could argue with the results so far:

The share price has nearly tripled since officials announced the merger Feb. 14, 2013, and it’s up by two-thirds since the deal closed less than six months ago.

US Airways and American have already made major strides in linking up their networks through codesharing and putting US Airways into the Oneworld global airline alliance.

In its first full quarter, which ended March 31, American Airlines Group reported net income of $402 million, excluding special items.

Analyst consensus is that the Fort Worth-based company will earn more than $1.2 billion in the second quarter, $3.7 billion for the year and more than $4.3 billion in 2015.

American Airlines Group “offers what we think could be the best earnings growth outlook among the airlines we cover,” industry analyst Darryl Genovesi of UBS Securities said in a report Monday.

“Things are going well so far,” Scott Kirby, American’s president, said at a Wolfe Research investment conference May 21. “We know we have a lot of hard work left to do, and we’re going to have some stumbles along the way. But so far we’re off to a great start.”

Company executives might have liked the consolidation of the labor groups to go faster, McAdoo said, “but in terms of making progress in the first six months compared to other carriers … they seem to be moving along at a pace faster than we’ve seen elsewhere.”

For example, American and US Airways quickly linked up their separate route systems with codesharing, or selling one carrier’s flights under the name and flight number of the other. That allows them to offer a much bigger network to potential customers, in anticipation of the day when both networks will be combined under the American Airlines brand.

“My other sense is that American Airlines is such a big entity that they’re probably still finding things, still learning about what they’ve got,” McAdoo said.

And for those who own stock in the new American Airlines Group? “From a point of view of investors, they’re clearly pleased,” McAdoo said.

When the merger was announced on Feb. 14, 2013, the value of the deal was based on US Airways stock, which closed at $13.99 a share that day. By Dec. 9, the day the merger took effect and the new “AAL” shares were issued and began Nasdaq trading, the stock had jumped to $24.60, up 76 percent.

Since then, it has just kept rising. On Monday, shares closed at $41.22, up about 195 percent since the February 2013 announcement and more than 67 percent since Dec. 9.

Investors who owned shares in American Airlines Group’s predecessor, AMR Corp., are enjoying the stock market rise, despite AMR’s two-year trip through Chapter 11 bankruptcy proceedings. While shares in most bankrupt companies have no value, the merger deal provided that AMR shareholders would get at least 3.5 percent of the stock in the merged company.

The deal also provided that as the price of shares of US Airways and then American Airlines Group went up, the AMR shareholders would get even more stock. That’s because as each share was worth more, fewer shares would be needed to repay claims to holders of AMR’s claims and debts.

As it turned out, AMR shareholders received 0.744 shares of American Airlines Group stock for every share of AMR stock they owned. At Monday’s close, that equals about $30.67 in value for shares that spent much of 2012 selling for less than $1 and closed Dec. 6 at $11.39.

On Tuesday, American’s board of directors gathers in New York in advance of the annual meeting. That event will mark the departure of the last remaining top official from the old American Airlines, chairman Tom Horton.

Horton took over as AMR’s and American’s chairman and chief executive on the evening of Nov. 28, 2011, as the AMR board voted to take the carrier into bankruptcy. Chairman and CEO Gerard Arpey chose to retire rather than continue, and Horton, American’s president, was elected to replace him.

Horton directed the company through the lengthy bankruptcy reorganization and the talks with US Airways that led to the merger. But the deal left US Airways executives in control of the merged company.

The 2013 merger agreement provided that Horton would serve as non-executive chairman of the merged company until one day before its first annual meeting. That provision means that Horton will hand over his title Tuesday to Doug Parker, American’s CEO and the pre-merger chairman and CEO of US Airways.

Horton holds a unique distinction among people who have chaired the boards of directors of American Airlines and AMR: He leaves without ever chairing an annual meeting.

AMR last held an annual shareholder gathering in May 2011 in Los Angeles while Arpey was still in charge and the company’s struggles were deepening.

At that point, the carrier had had only two profitable years since 2001. The carrier lost more than $4 billion in 2008-10 and was in the middle of losing nearly $2 billion in 2011.

The old management team tried to address its problem by reducing labor costs and strengthening the airline’s five major hubs. It made a major deal in July 2011 to renew its fleet with an order for 460 airplanes and rights to take another 465.

But with cost-cutting a key part of its plan, the AMR board decided to file for bankruptcy protection that November after management’s attempt to strike a deal with its pilot union failed.

Nearly 2½ years later, the new management team talks about partnerships with labor rather than cost-cutting. Speaking at the Wolfe Research conference, Kirby said he senses a happy, motivated workforce when he flies and said that improved morale is helping drive higher profits and greater reliability.

Kirby acknowledged that a “rising tide” of a strong economy and demand was lifting profits for the entire airline industry.

However, he said he sees a “world where we can grow earnings faster than the rest of the industry and even faster than a rising tide. We feel really bullish, not just on the industry but even more bullish on the future of American Airlines and what we’ll be able to accomplish there.”

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